A Thorny Statute of Limitations Issue by Douglas M. Palais
Print this Article | Send to Colleague
A Thorny Statute of Limitations Issue by Douglas M. Palais
In last month’s E & O Spotlight, Linda Loving pointed out that the statute of limitations for professional liability claims in Virginia is three years. The Supreme Court of Virginia has decided several cases that stand for the proposition that E & O claims against insurance agents are potentially viable only if the allegation is that the agent violated an unwritten contract with the policyholder or putative policyholder.
One of the sections of the Code of Virginia mandates that a three-year statute of limitations applies to unwritten contracts. (Section 8.01-246(4)) Another section of the Code states that a right of action based on an alleged breach of contract accrues “when the breach of contract occurs … and not when the resulting damage is discovered… (Section 8.01-230)
Thus, a court must determine when the alleged breach occurred, which will start the running of the three-year statute of limitations. This is the thorny issue!
This issue is best illustrated by an example: Suppose an agent procures a CGL policy in 2010, which renews annually. The policy is renewed on virtually identical terms each year. The subject property that is insured burns down in 2013 and the policyholder sustains a substantial co-insurance penalty. Long after the fire, in 2016, the policyholder sues the agent, claiming that his business was underinsured due to agent error.
Did the alleged breach occur when the initial policy was procured? Or did it occur when the premises were destroyed by fire and the carrier imposed the co-insurance penalty? I maintain that the alleged breach occurred, and the right of action thus accrued, when the initial policy was procured because, if the policyholder’s allegations are to be believed, he was exposed to the penalty from that date forward. The opposing view, of course, is that the policyholder did not sustain any damage until the fire occurred and thus did not have a right of action until 2016.
Many judges struggle with this issue and it is not a simple one. The best way to defend yourself is to document extensively every communication that you have with your customers, starting at policy inception and continuing with each renewal. By doing so, you will be providing counsel with a great deal of evidence that may support a dismissal of the case based on the applicable statute of limitations.
Doug Palais has been the “lawyer of choice” for IIAV’s Professional Liability clients for over 25 years. Doug recently joined the Vandeventer Black LLP law firm, which is a full service, international business law firm operating for over 100 years. He is a seasoned trial lawyer and counselor with 35 years of experience and concentrates his practice in Professional Liability; Errors & Omissions Defense of Insurance and Securities Professionals; Directors & Officers Liability Defense; Securities Litigation and Arbitration; Insurance Coverage and Defense; Legal Malpractice Defense and Financial Institutions and Securities. Doug regularly writes and speaks on issues relating to insurance agents and brokers. He is also a frequent speaker for IIAV on professional liability and regulatory matters. Doug also makes himself available to member agents in connection with legal problems.
Douglas M. Palais
VANDEVENTER BLACK, LLP
Riverfront Plaza – West Tower
901 E. Byrd StreetSuite 1600
Richmond VA 23219
804-237-8811
dpalais@vanblk.com
